Elevator Pitch

I’ve a Maintain funding score for Lufax Holding Ltd (NYSE:LU) (6623:HK). I touched on Lufax’s Q3 2023 monetary efficiency and its proposed buy of a digital financial institution in my prior article printed on November 14, 2023.

The main focus of this write-up is the comparability of LU with its key Mainland Chinese language on-line lending or fintech friends. There are blended read-throughs from this peer comparability train warranting a Maintain score for LU.

On one hand, Lufax has been trailing its friends when it comes to person development for December 2023 and the primary two weeks of January 2024. Then again, negatives are already priced in, as LU is valued by the market at decrease valuation multiples as in comparison with its friends, and consensus forecasts level to a top-line decline for Lufax in FY 2024.

LU’s Current Consumer Development Metrics Had been Inferior To That Of Its Friends

The newest MAU (Month-to-month Lively Customers) and DAU (Day by day Lively Customers) metrics for Lufax weren’t nearly as good as in comparison with the corporate’s key fintech or on-line friends.

China Renaissance, a Mainland Chinese language sell-side analysis agency, issued a report (not publicly out there) with the title “China Online Lending Platforms: Credit Data Tracker: Dec 2023” on January 23, 2024, which offered particulars about the newest person development metrics for key fintech companies in China. On this late-January analysis report, China Renaissance famous that it had sourced information from varied “third-party data service providers including WIND, China Bond and QuestMobile.”

As indicated in China Renaissance’s January 23, 2024 report, Lufax’s cell software MAU decreased by -1.1% on a MoM (Month-on-Month) foundation within the ultimate month of 2023. In distinction, Qifu Expertise, Inc. (QFIN) and FinVolution Group (FINV) noticed the MAUs for his or her respective cell functions decline by -0.3% and -0.6%, respectively for December 2023 in MoM phrases.

Additionally, LU’s person development efficiency was weaker than that of its friends within the early a part of 2024. QFIN’s and FINV’s respective cell functions recorded constructive DAU development charges of +8.4% MoM and +6.5% MoM, respectively, within the first two weeks of January. As a comparability, LU’s cell software DAU rose by +5.5% MoM throughout the identical timeframe.

For my part, Lufax’s person development was inferior to the corporate’s fintech friends due to LU’s give attention to “small business owners” as highlighted in its press releases. Compared, most different Mainland Chinese language on-line lending firms are primarily serving particular person debtors or customers. The distinction in shopper base would possibly assist to offer a proof for Lufax’s comparatively bigger MAU decline in December 2023 and relatively slower DAU development for the primary half of the January 2024 month.

Current financial information point out that Chinese language customers could be doing barely higher than companies working in China. The unemployment fee for Mainland China was 5.2% in 2023 which was higher than the policymakers’ 5.5% purpose, and this implied that fewer-than-expected Chinese language staff have been out of jobs final yr. Quite the opposite, Mainland Chinese language companies nonetheless appear to be underperforming, contemplating that “China’s Manufacturing PMI from the National Bureau of Statistics for December (2023) fell for the third straight month” as talked about in a January 1, 2024 Searching for Alpha Information article.

Additionally it is noteworthy that Lufax quoted third-party financial and business information which advised that “the SBO (Small Business Owners) segment will likely recover more slowly than the rest of the (Chinese) economy” at its most up-to-date Q3 2023 earnings call.

In a nutshell, Lufax’s newest person metrics have been unsatisfactory based mostly on a peer comparability, which is probably going attributable to the corporate’s give attention to Chinese language small-to-medium sized enterprises.

Negatives Are Already Factored Into Consensus Estimates And Valuations

Within the previous part, I highlighted that LU’s person development for December 2023 and the primary two weeks of January 2024 was slower as in comparison with that of the corporate’s key friends. The negatives related to weaker person development metrics for Lufax are mirrored within the firm’s consensus monetary projections and valuation multiples.

The market anticipates that Lufax’s prime line in native foreign money or RMB phrases will contract by -0.7% in fiscal 2024 as per consensus estimates taken from S&P Capital IQ. However the sell-side analysts see FinVolution Group and Qifu Expertise increasing their prime line by +12.8% and +12.7%, respectively in RMB phrases, for the present fiscal yr. The distinction in consensus monetary forecasts for these three on-line lending or fintech firms is not any shock, making an allowance for the unfavorable read-throughs from LU’s latest MAU and DAU numbers.

With respect to revenue-based valuations, Lufax is at present buying and selling at a consensus ahead price-to-sales or P/S a number of of 0.28 times. FINV and QFIN at the moment are valued by the market at comparatively greater P/S ratios of 0.74 times and 1.06 times, respectively.

When it comes to earnings-based valuations, the market is valuing LU at a consensus FY 2024 normalized P/E metric of two.98 instances as per S&P Capital IQ information. Compared, FinVolution Group and Qifu Expertise’s consensus FY 2024 normalized P/E multiples are 3.43 instances and three.42 instances (supply: S&P Capital IQ), respectively.

In abstract, Lufax trades at a reduction to its key Chinese language fintech friends, and LU’s top-line efficiency is anticipated to be weaker than that of its friends this yr.

Ultimate Ideas

LU is now buying and selling at comparatively decrease P/S and P/E multiples than its friends. Nevertheless, Lufax’s valuation low cost is justified, contemplating consensus monetary projections and the latest person development numbers for LU and its friends. As such, I see no purpose to alter my present Maintain score for LU.